Page 7 - DECO405_MANAGERIAL_ECONOMICS
P. 7

Managerial Economics




                    Notes          Objectives

                                   After studying this unit, you will be able to:
                                       Explain the nature and scope of managerial economics

                                       Identify the role of economics in decision making
                                       Discuss the concepts of economic analysis

                                   Introduction

                                   Countless firms have used the well-established principles of managerial economics to improve
                                   their profitability. Managerial economics draws on economic analysis for such concepts as cost,
                                   demand, profit and competition. It attempts to bridge the gap between the purely analytical
                                   problems that intrigue many economic theorists and the day-to-day decisions that managers
                                   must face. It now offers powerful tools and approaches for managerial policy-making. It will be
                                   relevant to present here several examples illustrating the problems that managerial economics
                                   can help to solve. These also explain how managerial economics is an integral part of business.
                                   Demand, supply, cost, production, market, competition, price, etc. are important concepts in
                                   real business decisions.

                                   1.1 Meaning and Definition of Managerial Economics

                                   Managerial Economics is a discipline that combines economic theory with managerial practice.
                                   It tries to bridge the gap between the problems of logic that intrigue economic theorists and
                                   the problems of policy that plague practical managers. The subject offers powerful tools and
                                   techniques for managerial  policy-making. An  integration of  economic  theory and tools  of
                                   decision sciences works successfully in optimal decision-making in face of constraints. A study
                                   of managerial  economics enriches  the analytical  skills, helps in the  logical structuring of
                                   problems, and provides adequate solution to the economic problems.
                                   To  quote Mansfield,  "Managerial Economics  is concerned with the application of economic
                                   concepts and economic analysis to the problems of formulating rational managerial decisions."
                                   According to McNair and Meriam, "Managerial economics is the use of economic modes  of
                                   thought to analyse business situations."
                                   "Managerial  Economics  is  concerned  with  the  application  of  economic  principles  and
                                   methodologies to  the decision making  process  within  the firm or organisation  under  the
                                   conditions of uncertainty," says Prof. Evan J Douglas.
                                   Spencer and Siegelman define it as "The integration of economic theory with business practice
                                   for the purpose of facilitating decision making and forward planning by management."
                                   According to Hailstones and Rothwel, "Managerial economics is the application of economic
                                   theory and analysis to practice of business firms and other institutions."

                                   1.2 Nature of Managerial Economics

                                   A close interrelationship between management and economics has led to the development of
                                   managerial economics. Management is the guidance, leadership and control of the efforts of a
                                   group of people towards some common objective. It does tell us about the purpose or function
                                   of management but it  tells us  precious little  about the  nature of  the management  process.






          2                                 LOVELY PROFESSIONAL UNIVERSITY
   2   3   4   5   6   7   8   9   10   11   12